10/22/2014. with Jean Cunningham. Building LEAN Beyond Manufacturing. Productivity Press, 2007 Shingo Prize, Managing Times Press, 2003

Transcription

1 First Steps to Lean Accounting s with Jean Cunningham Building LEAN Beyond Manufacturing Managing Times Press, 2003 Shingo Prize, 2004 Productivity Press, 2007 Shingo Prize, 2008 Founder and president Lean accounting /lean business management / lean office pioneer Former CFO, Lantech, Inc Former CFO, Marshfield Door Systems 2 1

2 How to Implement Lean s Continuous Improvement with Respect for People After Total Company and Product Line Total Company Product Family 1 Order Intake Shipments Discounts Allowances Net Sales Material Content Freight Inventory Reserve Variable Margin Variable Margin % Direct MFG Cost Allocated MFG Cost Absorption Gross Margin Sales Marketing Admin Other /Expense Ordinary Profit Bonus Profit before Tax Product Family 2 Product Family 3 Product Family 4 Product Family 5 4 2

3 Key Characteristics Separate variable from non variable Separate direct from shared Separate accounting transaction for labor and overhead in inventory change Easy to understand language plain English Organize by groupings meaningful to business - Value streams - product lines - locations - etc 5 Form based on this presentation Ask for on business card Lean s Checklist 6 3

4 Key Surprises Implementation Learning Much easier than expected Much of the information is already available People furthest from the information think it is more accurate than it actually is Desire for the new measurements Key Barriers Finance as only driver Lack of manufacturing knowledge in accounting Lack of understanding of inventory change impact Pricing WIP variability Key Risks Inertia from location size Inadequate interest from accounting and finance No leadership from executive owner 7 Work that customer wants Benefits Decision making Easier to understand Simple language Support Change Reduce close time Reduce audit GAAP based Optimize Information Eliminate Waste 8 4

5 Trial Balance Mechanics Ui Using the Info You Have in a New Way 9 Lean Mechanics Example A stop gap for companies that would like to have lean statements but are not ready to eliminate the waste of the standard cost system. A strong case to ensure during ERP setup that options are kept open through system design. Risk that this will be interpreted as THE WAY to do Lean Accounting. 10 5

6 Balance Traditional Cost of Goods Sold $225,000 at Lean Mechanics Example $7,000 Variance Inventory (but very hard to ($17,000) see) 11 Lean Mechanics Example Balance Traditional Trial Balance Acct Detail Cost of Labor relieved Goods Sold from inventory $225, O/H relieved from 1100 $ Amount CR Inv $150,000 CR Inv $75,000 $7,000 Variance Labor Cost incurred 1001 BS $125, CR IS ($130,000) Inventory (but very hard to ($17,000) see) Incurred 1101 BS $90,000 to 1102 CR IS ($78,000) 12 6

7 Lean Mechanics Example Balance Traditional Trial Balance Acct Detail $ Amount Balance Lean Trial Balance Acct Detail $ Amount Cost of Labor relieved Goods Sold from inventory Labor Cost $225, CR Inv $150,000 $125,000 Labor Cost Incurred 1001 BS $125,000 O/H relieved from 1100 CR Inv $75,000 Labor Cost $7,000 Variance incurred 1001 BS $125, CR IS ($130,000) Incurred 1101 BS $90,000 to 1102 CR IS ($78,000) Inventory (but very hard to ($17,000) see) 13 Lean Mechanics Example Balance Traditional Trial Balance Acct Detail $ Amount Balance Lean Trial Balance Acct Detail $ Amount Cost of Labor relieved Goods Sold from inventory Labor Cost $225, CR Inv $150,000 $125,000 Labor Cost Incurred 1001 BS $125,000 O/H relieved from 1100 CR Inv $75,000 Overhead $90,000 Cost Incurred 1101 BS $90,000 Labor Cost $7,000 Variance incurred 1001 BS $125, CR IS ($130,000) Incurred 1101 BS $90,000 to 1102 CR IS ($78,000) Inventory (but very hard to ($17,000) see) 14 7

8 Lean Mechanics Example Balance Traditional Trial Balance Acct Detail $ Amount Balance Lean Trial Balance Acct Detail $ Amount Cost of Labor relieved Goods Sold from inventory Labor Cost $225, CR Inv $150,000 $125,000 Labor Cost Incurred 1001 BS $125,000 O/H relieved from 1100 CR Inv $75,000 Overhead $90,000 Cost Incurred 1101 BS $90,000 Labor & Labor Relieved $7,000 Variance Labor Cost incurred 1001 BS $125,000 O/H change from inventory $17,000 in 1000 CR Inv $150, CR IS ($130,000) O/H Relieved from 1100 CR Inv $75,000 Incurred 1101 BS $90,000 Standard 1002 CR IS ($130,000) to 1102 CR IS ($78,000) Inventory (but very hard to Change in ($17,000) see) ($17,000) Inventory to Standard 1102 CR IS ($78,000) 15 Lean Mechanics Example Balance Traditional Trial Balance Acct Detail $ Amount Balance Lean Trial Balance Acct Detail $ Amount Cost of Labor relieved Goods Sold from inventory Labor Cost $225, CR Inv $150,000 $125,000 Labor Cost Incurred 1001 BS $125,000 O/H relieved from 1100 CR Inv $75,000 Overhead $90,000 Cost Incurred 1101 BS $90,000 Labor & Labor Relieved $7,000 Variance Labor Cost incurred 1001 BS $125,000 O/H change from inventory $17,000 in 1000 CR Inv $150, CR IS ($130,000) O/H Relieved from 1100 CR Inv $75,000 Incurred 1101 BS $90,000 Standard 1002 CR IS ($130,000) to 1102 CR IS ($78,000) Inventory (but very hard to Change in ($17,000) see) ($17,000) Inventory to Standard 1102 CR IS ($78,000) 16 8

9 Clarification & Caution I do not want to imply that keeping both the standard cost system and the lean cost system is necessary. In fact, it is not necessary. It is waste. If you do not have a standard cost system, do not start it. This approach is only to bridge the corporate reality that many face: inertia to real change, but strong desire to view the information with a clean lens. This is a stop gap.but the real goal is to get better information to your internal customers. Take action!!!!

10 Profit Model Profit Loss Break even Fixed Resources $ Volume Invested Capital Fixed Assets Inventory Receivables 19 Profit Model Profit Accelerated Profit Loss Break even $ Volume Invested Capital Fixed Assets Inventory Receivables 20 10

11 Lean Accounting Economic Model = Standard Cost Thinking = Lean Thinking Variable or Contribution Margin Anticipated Additional Loss Anticipated Additional Loss A C B D Anticipated Additional Profit Anticipated Additional Profit Gross Margin % Fixed in the Near Term + SG&A SG&A $ X% Break even Volume +X% Invested Capital Fixed Assets Inventory Receivables

12 Questions & Answers A leader is like a shepherd. He stays behind the flock, letting the most nimble go out ahead, whereupon the others follow, not realizing that all along they are being directed from behind. Nelson Mandela As quoted by Linda A. Hill Harvard Business Review January JCC Lean Business Management Lean Strategic Coaching Business Process Kaizen Events Lean Office Workshops Lean Executive Sensei LeanIT and IS Migration Lean Accounting Lean s Lean Metrics Lean Human Resources 24 12

13 Contact Jean Cunningham Phone: First Steps to Lean Accounting s with Jean Cunningham Material is Copyrighted 13